Is McDonald’s Corporation (MCD) A Good Stock To Buy?

Several news stories in the media recently discussed the performance of the “VIP” stock list compiled by Goldman Sachs, which includes the 50 most-owned stocks among hedge funds. Although this “VIP” list has underperformed broader market benchmarks so far in 2016, this basket of stocks outperformed the S&P 500 on a quarterly basis 64% of the time since 2001 through 2015. This evidence is quite impressive, and makes us believe that individual investors could generate big trading profits by picking some winners from this list of 50 companies that matter the most to hedge funds managers. In fact, Goldman Sachs is currently working on launching a new ETF called the Goldman Sachs Hedge Fund VIP ETF, based on the 50 most-owned stocks among hedge funds. Clearly, analysts from Goldman Sachs do believe in the hedge funds’ ability to identify high-potential stocks. This represents the main reason why Insider Monkey takes notice of hedge fund activity, so this article will solely focus on discussing smart money investors’ activity around McDonald’s Corporation (NYSE:MCD).

McDonald’s Corporation (NYSE:MCD) shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. MCD was in 84 hedge funds’ portfolios at the end of the fourth quarter of 2015. There were 75 hedge funds in our database with MCD holdings at the end of the previous quarter. At the end of this article we will also compare MCD to other stocks, including CVS Caremark Corporation (NYSE:CVS), Mastercard Inc (NYSE:MA), and British American Tobacco PLC (ADR) (NYSEAMEX:BTI) to get a better sense of its popularity.

At the moment there are a lot of formulas shareholders use to evaluate publicly traded companies. Two of the best formulas are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best investment managers can outclass their index-focused peers by a superb amount (see the details here).

The global fast food restaurant chain, which operates and franchises 36,525 restaurants in 119 countries as of the end of December 2015, operates in a highly-competitive market that is constantly shaped by changing food trends and consumer preferences. McDonald’s Corporation (NYSE:MCD) generated total revenues of $25.41 billion in 2015, notably below the $27.44 billion delivered in 2014 and $28.11 billion in 2013. However, these figures do not represent an accurate snapshot of the company’s actual performance. The company’s 2015 consolidated revenues increased 3% year-on-year in constant currencies, while its global comparable sales grew 1.5% year-on-year. Moreover, McDonald’s embarked on a turnaround journey last year in an attempt to reset its business and boost growth. As a result, the company disposed of its geographically-focused structure and decided to focus on segments that combine end-markets with comparable characteristics and opportunities for growth instead. The new operating structure is expected to increase the company’s focus on its consumers and provide greater accountability. It appears that the new turnaround efforts have already started to bear fruit, as McDonald’s Corporation (NYSE:MCD)’s shares have advanced 18% over the past 12 months.

It is also important to note that McDonald’s Corporation (NYSE:MCD) is among the highly-scrutinized collection of dividend aristocrats, as the company has increased its annual dividend payments for 39 straight years. The fast food restaurant chain pays out an annual dividend of $3.56 per share, which denotes a current dividend yield of 3%. Meanwhile, the stock is priced at 19.58-timed expected fiscal 2017 earnings, substantially below the forward P/E multiple of 24 for the Restaurants industry. According to Euromonitor International, the global informal eating out (IEO) segment generated approximately $1.2 trillion in annual sales in 2014, with McDonald’s restaurant business accounting for 7.2% of those sales. Therefore, McDonald’s can keep growing in the upcoming years considering the massive size of the global IEO segment and the company’s recent turnaround efforts.

Keeping this in mind, let’s check out the fresh action regarding McDonald’s Corporation (NYSE:MCD).

How are hedge funds trading McDonald’s Corporation (NYSE:MCD)?

At Q4’s end, a total of 84 of the hedge funds tracked by Insider Monkey were long this stock, a change of 12% from the third quarter. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Jonathon Jacobson’s Highfields Capital Management has the number one position in McDonald’s Corporation (NYSE:MCD), worth close to $1.41 billion, corresponding to 12.1% of its total 13F portfolio. On Highfields Capital Management’s heels is OZ Management, managed by Daniel S. Och, which holds a $653.7 million position; the fund has 3.6% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism encompass First Eagle Investment Management, and Howard Guberman’s Gruss Asset Management.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness.  For example, Doug Silverman and Alexander Klabin’s Senator Investment Group made a $177.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Kerr Neilson’s Platinum Asset Management, Neal Shah’s Valtura Capital Partners, and Josh Resnick’s Jericho Capital Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as McDonald’s Corporation (NYSE:MCD) but similarly valued. These stocks are CVS Caremark Corporation (NYSE:CVS), Mastercard Inc (NYSE:MA), British American Tobacco PLC (ADR) (NYSEAMEX:BTI), and GlaxoSmithKline plc (ADR) (NYSE:GSK). All of these stocks’ market caps are closest to MCD’s market cap.

As you can see these stocks had an average of 44 hedge funds with bullish positions and the average amount invested in these stocks was $2.28 billion. That figure was $6.74 billion in MCD’s case. Mastercard Inc (NYSE:MA) is the most popular stock in this table. On the other hand British American Tobacco PLC (ADR) (NYSEAMEX:BTI) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks McDonald’s Corporation (NYSE:MCD) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None